What Happened to Goldman Sachs. Steven G. Mandis
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and somebody told me that it looked too much like the Ten Commandments, so I made it into twelve. I believe it’s up to fourteen now, because the lawyers got hold of it and they’ve changed a few words and added to it a little bit.”1 Although he helped bring in deal after deal and helped make strategic decisions for Goldman, Whitehead said that committing the firm’s values to words on paper was his greatest contribution.2 More than anything else, it was a statement about the perceived power of the codified values to nourish and support the partnership culture.3
From my interviews with those who were partners in the 1980s, it is apparent that all of them thought the principles reflected the culture and agreed with and relied upon them, which they believed allowed the firm to be less hierarchical than its peers.4 Although many firms now have codified principles of ethical behavior (some more revered than others), Whitehead’s commandments were revolutionary for the Wall Street at the time.5 The principles promoted cohesiveness in a firm with decentralized management, among Goldman partners who were owners and managers of businesses.
The list of twelve principles was approved by the management committee—which is responsible for policy, strategy, and management of the business and is chaired by the head of the firm—and was then distributed to every Goldman employee. A copy was sent to each employee’s home as well to help family members understand and cope with the long hours and extensive travel demanded of their loved ones.6 Whitehead’s hope was that family members would be proud of their association with an ethical firm that espoused high standards, and that employees—especially new partners with heavy travel schedules—would feel less guilty about spending so much time away from home.7 Goldman managers were expected to hold quarterly group meetings for the sole purpose of discussing the firm’s values and principles as they applied to the group’s own business.8 When I started at Goldman in 1992, it was typical, when introducing ourselves and the firm in initial meetings with clients, to include the “Firm Principles” on the first page of the presentation (essentially a sales pitch), letting the clients know what differentiated Goldman from its competitors.9
By the time of the tech boom in the late 1990s, the practice of managers holding regular meetings to specifically discuss the principles seems to have been discontinued, although they were certainly discussed in general meetings and in training sessions. One current Goldman partner told me that the principles are still talked about and discussed.10 They have not been abandoned, but he believes they are not as revered as they once were. He told me he could not recall seeing the principles hanging on the walls like they used to, although they can be found in annual reports and on Goldman’s website. However, the partner explained that with the recent regulatory and legal scrutiny, along with media attention, there is a renewed focus and more training sessions on the business principles.
Goldman’s principles were modified slightly over the years when, as Whitehead put it, the lawyers got hold of them. I also remember when a fellow analyst wrote a memo in 1992 pointing out grammar and punctuation errors in the principles and sent it to a member of the management committee. I believe a few of his recommended changes were made. As mentioned earlier, the most significant modification to the list of principles, made just before Goldman went public, was the addition of the principle related to returns to shareholders, which was given prominence by being listed third.
Here are the principles (as updated, now including fourteen):
1 Our clients’ interests always come first. Our experience shows that if we serve our clients well, our own success will follow.
2 Our assets are our people, capital and reputation. If any of these is ever diminished, the last is the most difficult to restore. We are dedicated to complying fully with the letter and spirit of the laws, rules and ethical principles that govern us. Our continued success depends upon unswerving adherence to this standard.
3 Our goal is to provide superior returns to our shareholders. Profitability is critical to achieving superior returns, building our capital, and attracting and keeping our best people. Significant employee stock ownership aligns the interests of our employees and our shareholders.
4 We take great pride in the professional quality of our work. We have an uncompromising determination to achieve excellence in everything we undertake. Though we may be involved in a wide variety and heavy volume of activity, we would, if it came to a choice, rather be best than biggest.
5 We stress creativity and imagination in everything we do. While recognizing that the old way may still be the best way, we constantly strive to find a better solution to a client’s problems. We pride ourselves on having pioneered many of the practices and techniques that have become standard in the industry.
6 We make an unusual effort to identify and recruit the very best person for every job. Although our activities are measured in billions of dollars, we select our people one by one. In a service business, we know that without the best people, we cannot be the best firm.
7 We offer our people the opportunity to move ahead more rapidly than is possible at most other places. Advancement depends on merit and we have yet to find the limits to the responsibility our best people are able to assume. For us to be successful, our men and women must reflect the diversity of the communities and cultures in which we operate. That means we must attract, retain and motivate people from many backgrounds and perspectives. Being diverse is not optional; it is what we must be.
8 We stress teamwork in everything we do. While individual creativity is always encouraged, we have found that team effort often produces the best results. We have no room for those who put their personal interests ahead of the interests of the firm and its clients.
9 The dedication of our people to the firm and the intense effort they give their jobs are greater than one finds in most other organizations. We think that this is an important part of our success.
10 We consider our size as an asset that we try hard to preserve. We want to be big enough to undertake the largest project that any of our clients could contemplate, yet small enough to maintain the loyalty, the intimacy and the esprit de corps that we all treasure and that contribute greatly to our success.
11 We constantly strive to anticipate the rapidly changing needs of our clients and to develop new services to meet those needs. We know that the world of finance will not stand still and that complacency can lead to extinction.
12 We regularly receive confidential information as part of our normal client relationships. To breach a confidence or to use confidential information improperly or carelessly would be unthinkable.
13 Our business is highly competitive, and we aggressively seek to expand our client relationships. However, we must always be fair competitors and must never denigrate other firms.
14 Integrity and honesty are at the heart of our business. We expect our people to maintain high ethical standards in everything they do, both in their work for the firm and in their personal lives.
The emphasis on the principles helped distinguish the firm, and over the years, most successful interview candidates were very familiar with them. The principles guided thousands of interactions each day—interactions that put the firm’s reputation and partners’ capital at risk.11 One senior partner said, “As a small firm, we passed on our shared ideals and culture in an avuncular style. Everyone sat next to someone who was very experienced and had been there a long time. We were very small, concentrated in a few offices around the United States, so it was easy to do … Every boss I ever had worked harder than I did … This is a really good business and it’s also a pleasant place to work, if you select the right people on the way in.”12 Goldman’s principles also provided a way to substantiate the firm’s trustworthiness in the eyes of clients and potential candidates.
The principles, combined with actual strategic business practice and policy decisions (such as not representing hostile raiders, as I discuss later), created for Goldman a powerful “good guy” image—both internally and externally. In 1984, a Morgan Stanley banker even publicly conceded that the principles and resulting practices made clients perceive Goldman as “less mercenary and more trustworthy than Morgan Stanley.”13
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